Red Cat to sell consumer drone units Rotor Riot and Fat Shark to focus on security specialist Teal

Diversified aerial tech group Red Cat Holdings is moving to tighten its range of activities with the announcement it will sell its two consumer drone divisions, Rotor Riot and Fat Shark, to focus on the military and security activities of its surging Teal unit.

Puerto Rico-based Red Cat said it will divest from the two divisions geared entirely for consumer drone markets in a cash and equity transaction with Unusual Machines Inc. That deal will shift Rotor Riot’s UAV development and manufacturing business – producing craft ranging from custom racing drones to ready-to-fly starter models – and Fat Shark’s FPV goggles operation out of Red Cat’s holding stable.

With those consumer drone assets no longer part of its organizational structure, Red Cat says it will concentrate on building the momentum it has attained with the military and security clients of its specialized Teal Drones division. 

Read: Teal to supply Golden Eagle drones to US Customs and Border Protection 

Since acquiring the business last month, Red Cat has guided Teal through a series of considerable breakthroughs, including last May’s introduction of its 4-Ship swam system allowing a quartet of craft to be operated by a single controller. 

That was followed up with a partnership last month with Tomohawk Robotics designed to both enhance the capabilities of that multi-craft platform, and extend its control to non-aerial rover and robots participating in the same missions. Shortly before that, Teal welcomed Reveal Technology assets into its mix to enable more accurate and detailed mapping capacities for military and security clients needing exact situational awareness data for sensitive missions.

Red Cat’s shift away from consumer drone activities to hunker down on specialized craft was also motivated by significant business successes that Teal hopes to build on. 

One was the US Customs and Border Protection agency agreeing to buy $1 million in Golden Eagle drones – part of a wider government procurement budget of nearly $100 million still up for grabs. Earlier the company was short-listed in the US Army’s Short Range Reconnaissance Tranche 2 (SRR T2) Program, a competitive process aiming to develop a powerful but portable small craft for surveillance and reconnaissance missions.

Read more: Teal Drones tapped for US Army’s Short Range Reconnaissance Tranche 2 bid

Its plans in the pursuit of that specialized market segment, said Red Cat CEO Jeff Thompson, made continued involvement in its consumer drone activity something of a distraction.

“The sale of Rotor Riot and Fat Shark Holdings will allow us to focus our efforts and capital on military and defense,” Thompson said. “Our recent partnerships with Tomahawk Robotics and Reveal Technology gives the warfighter a complete ‘Made in USA’ system with 360 degrees of situational awareness, multi-ship control of four vehicles by one operator, and rapid intelligence at the tactical edge. This transaction will strengthen our already healthy balance sheet with additional non-dilutive capital to help us execute our rapid growth.”

But its direct divestment from Rotor Riot and Fat Shark – which it only acquired in 2020 – is more of an au revoir than adieu. The deal will unload the two companies for $18 million total – $5 million in cash, $2.5 million in a convertible senior note of Unusual Machines, and $10.5 million in Series A convertible preferred stock. Meaning, until those shareholdings are sold off sometime in future, Red Hat will retain financial interest in its two soon-to-be ex-divisions.